Uber reported an 18 percent jump in trips in its latest earnings report, but there are concerns about the ride-hailing business despite the positive news. Howard Yu, the LEGO professor of management and innovation at IMD Business School, joined Cheddar News to talk about the competition between the ride-hailing competitors Uber and Lyft in a more cautious market. “Fundamentally if you're thinking about Lyft or Uber, these are platform businesses, and so in platform businesses, there is always a natural monopoly," he said. "So if you're looking at ride-hailing, why do we have two competitors? Because investors in the past have been happy throwing money at them. That was a temporary moment, so going forward, it is worrisome, how can a limited market accommodate two giants at the same time?" 

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Uber Drivers, Riders Return as Lyft Struggles, but Concerns Grow Over Ridesharing

Okay, well if you've been calling more ubers to get around recently, you're not alone during the first quarter of the year, the ride hailing giants on 18% jump in trips compared to the same time last year and Uber sharing news of the increase in its earnings report this morning along with the beat on Wall street expectations for its top and bottom lines. Now, the company also announcing it will not have to offer incentives to keep drivers on the platform, which is something that its rival lift has said it will do a lift shares dropping drastically following the news of those incentives and today shares of Uber and Lyft both Down notably despite a higher market, I mean, lift down 29%, nearly 30%. That is one of the roughest days that we've seen post earnings since Netflix's own report and then uber down 4.3%. So pretty notable losses there. But joining me now is Howard, you lego professor of management and Innovation at IMD Business school. Howard, it's good to see you, uh, so Uber sharing at these mobility revenues for the quarter, surpassing delivery revenues for the first time since the start of the pandemic, what kind of indication does that signal as to the future for Uber's business this year? I mean, the worrisome thing is despite the surging revenue, we see Uber is still making a loss and primarily because of the investment that they have been making a grab in other hot startups, they're all taking a plunge. So there is this investment right off happening. But I think the broader story is here is that investors and the financial market are really looking at solid earnings going forward just because you're sustaining top line growth is no longer enough. And that brings us to the second story you just mentioned lived because they said they would invest in more driver incentive, the financial market just panic. They don't see this as a sustainable strategy going forward. So what does this mean for lifts business? Obviously Uber taking it on the chin butt lift, feeling the pressure even more. We know that there is one key differentiator. Howard between Lyft and Uber. Lyft is exclusively ride hailing I think in 2020 the key phrase that investors and financial markets looking at at is business diversification And in a way that Uber is slightly better than lift. But fundamentally if you're thinking about living Uber, these are platform businesses and so in platform businesses, there's always this natural monopoly. There's only one google search engine, there's only one twitter and there's only one facebook in a sense. So if you're looking at the right helling why we have two competitors because investors in the past have been happy throwing money at them, that was a temporary moment. So going forward, it is worrisome, how can a limited market can accommodate two giants at the same time. Right? So in and after earnings call today, Uber Ceo speaking on lifts own struggles without mentioning the company by name saying quote, you heard, I think last night one of our competitors in the U. S. Having challenges were at least looking to lean into drivers supply Are active drivers in the us and Canada are up 70% on a year on year basis in April and it is because we're bringing it new drivers on not as uber rides, but as uber eats and of course as uber as a platform and to earn any way, shape or form on the platform. End, quote, what are your thoughts on those comments? I mean, it's interesting that you know, Uber is busy distancing itself against his competitor, right? And everything they said is trying to project itself as being future ready and then I am the old executive these days talking about is, we don't know what kind of next crisis is going to unfold, there is so much uncertainty going around, inflation, interest rates, etcetera, but all they know is they need to build up future capability to buffer themselves against the words and this is the uber positioning right there essentially saying, look, we have no trouble getting drivers in and you know, we will continue to grow our Uber eats business and that is a projection that they have something to build towards in the future, using the healthy earning to plow back to the future business With a 30% drop in the stock of Lift. Howard do you think that lift could be a potential takeover target for another company? That is such a billion dollar question. Right. But one possible outcome you can see like left has to getting into business diversification period. You're looking at the tax sector, right? If you're a one trick pony, you do like netflix. Spotify the list, go on and for left for them to build online food delivery business on their own is almost impossible. Too expensive. Too late. By now it could be a potential merger with a big online giant. That could be a perfect combination. Perhaps we'll look at prices certainly up across the board Howard any indication that the Fed's policy might impact the future results of both Uber and Lyft knowing that the Fed is set to aggressively raised rates even though not perhaps um, as aggressive as investors had feared. Yeah, I think that really will trigger a complete change of the market environment. Um, once our interest rate is set to be higher or the expectation is going to go on the rise, then the cost of borrowing is gonna search, that means that access to cheap capital is over. And if you're taking mobility as a broader sector right? They don't even make it to our readiness indicator for even auto comical because if you're looking at right Helling company, they are really majority of the spending is still buying market share. Um, the core technology is relatively simple compared to Tesla or compared with china B. Y. D. There in battery autonomous driving chip set. That is what investors looking for. They're no longer looking for you to spend money on marketing expenditure, advertisement, even having Al Gore's leak app is not enough. You need to demonstrate to the market, you're investing in deep engineering so that they are willing to give you money for those funding. Okay, so another question is Russia's ongoing invasion of Ukraine. Clearly driving up gas prices. Car rental companies, different fleets want to add electric vehicles to their own fleet. And certainly I know for any Uber or Lyft riders, they've probably written in an electric vehicle at some point before if they are active riders. But the fact that gas prices are rising Howard and this company, both of these companies, certainly not immune to the geopolitical factors driving the overall stock market. What could the impact of a prolonged invasion have on these companies? What we already see the Uber bill has been going higher and higher. Right? So, uh, my school is that Switzerland and I also noticed my Uber bill has been going higher and I think there's a massive passing on price transfer to consumer, which means that when things are on the rising price consumers going to, you know, scale back in terms of usages. So that becomes a quite worrisome in terms of going forward. The revenue guidance. Um, so that would be the short term effect over the long run as the passenger car continue to move to electrified. Perhaps over the long run, the price comes down better. But the big winner here will be the E. V. Makers, not Uber nor left. Alright. Howard, We've got to leave it there. Always good to get your take. Great to see you. That's how would you like a professor of management and Innovation at IMD Business School?